Bank of Canada Holds Rates at 2.75% as Renewals Surge: What It Means for Homeowners

Canadian homeowners are bracing for a tough fall. The Bank of Canada held its policy rate steady at 2.75% in its latest decision, resisting immediate rate cuts despite cooling inflation. With more than half of Canadian mortgages set for renewal in 2025 and 2026, many borrowers face payment jumps of 10–20% compared to their current terms.

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The Rate Pause: A Careful Balancing Act

The central bank has now paused rates for a third straight meeting, citing stubborn core inflation above 3%. While headline inflation fell to 1.7% in July, policymakers remain cautious. Economists expect the first rate cut could come as early as autumn 2025, with projections of the policy rate moving toward 2.25% by year-end.

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Mortgage Renewals: A Painful Adjustment

According to the Bank of Canada’s latest analysis:

• 2025 Renewals: Borrowers could see an average 10% increase in monthly payments versus December 2024.
• 2026 Renewals: Expected increases of around 6%, though this depends on the pace of cuts.
• Fixed-rate Borrowers: Those locked into five-year terms will be hit the hardest, with some facing 15–20% jumps.
• Variable-rate Borrowers: Could see modest relief later in 2025 as cuts take effect.

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Inflation and Currency Trends

• Headline inflation cooled from 1.9% in June to 1.7% in July.
• Core inflation eased from 3.4% to 2.4%, signaling gradual progress.
• The Canadian dollar slipped to CAD 1.3855 per USD, reflecting increased rate-cut bets.
• Bond yields have also pulled back, creating potential room for mortgage rate declines in the months ahead.

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How Canadians Are Coping

A recent TD survey showed:

• 73% of Canadians are cutting non-essential spending to keep up with mortgage bills.
• 43% are delaying renovations or big purchases, prioritizing housing costs over lifestyle improvements.
• Households entering renewal cycles are budgeting more cautiously, with financial advisors reporting higher demand for mortgage restructuring advice.

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Looking Ahead: Signs of Relief

Economists at major Canadian banks anticipate:

• First rate cut by September or October 2025.
• Gradual easing through the winter, reducing pressure on variable-rate borrowers.
• If inflation continues to cool, 2026 renewals may be significantly less painful than those in 2025.

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Quick Recap Table

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Why It Matters

This decision highlights the double bind for Canadian households: inflation is cooling, but mortgage renewals are hitting at historically high rates. For many families, this means short-term pain before long-term relief. The Bank of Canada’s next moves will determine how quickly Canadians feel relief in their monthly budgets.

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